Veev on the rocks
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21-Oct-2014 -
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Transcript of Veev on the rocks
VeeV on the Rocks?Presented By:Ivetta Bunkina - 5727901Chen Ssu Ying- 1129104Dipan Patel- 5573890Ilham Jallu- 5590701Robin Wilson- 4941535
Company Overview
VeeV First alcoholic beverage infused with acai
berries Founded & launched in 2007 Brothers Courtney & Carter Reum Experienced rapid growth
Situational Synopsis
VeeV Launched as a super premium brand In exclusive & trendy cities As a green company & all natural brand Targeting young adults Restaurants, Bars & Liquor Stores
Problem Statement
3 pressing challenges confronting VeeV : How should the equity of the new
company be split ? How should VeeV handle the product
quality issue? How far should the company go in their
efforts to be ‘green’ and socially responsible ?
Ethnical Issues Sustainability
Organizational Issue - Distillation process Firm worked with distiller to go “carbon-neutral” Individual issue due to using acai berries Firm - only organic, sustainable berries, donates to acai charity
Underage drinking Must market towards appropriate audience
Marketing as healthy product Individual issue due to unique berry use Firm cannot promote drink as healthy but promote differentiation
Alcohol advertising Self imposed ban relaxed to promote on niche channels with adult
audiences
Suppliers, Customers & Investors (Owners) of Firm committed to making Ethical/Sustainable Decisions
External AnalysisIndustry Structure
Value Chain Supplier -> Distiller -> Distributer ->
Consumer
DistributionSales by Category
Supermarkets/ Hybrids 49.90%
Bars/Restaurants 27.70%
Specialty Retailors 15.00%
Other 7.40%
External Analysis Industry Economics
Market dominated by Big Players
Industry Market Share
2008 Market Share
Beer, Cider & Liqueurs 51.40%
Wine 17.30%
Spirits 31.30%
External Analysis Industry Economics
Profits High mark up attracts entrepreneurs
Boutique alcoholic beverages
Spirits Very good performance on sales Short Product Life Cycle Increase in cocktail consumption
External Analysis Industry Trends
Product Differentiation Flavoured Spirits Super Premium Brands
Social Drinking Signature Cocktails
Target Market Increased growth expected in younger consumers
More willing to experiment
Exit Strategy Small brands sell to major player
External Analysis Competitive Forces
Threat of New Entrants “Boutique” spirit can be launched for
$100,000-$250,000 with 500% mark-up Heavy Government regulation by TTB
Threat of Substitute Products Consumer preference
Moving to Cocktails from Beer Liquors have short shelf life
Consumers move to next hot product
External Analysis Competitive Forces
Bargaining Power of Suppliers Reputation
Quality – Distiller linked to Firm Availability – Distributer
Bargaining Power of Consumers Buyers are fickle & move towards hot items. Low loyalty to un-established brands Large choice of substitutes Demand quality & expected experience Motivated to try new brand based on recommendation
External Analysis Competitive Forces
Competitive Rivalry within the Industry Big Players control market Firms must create brand extension &
reputation for continued growth Differentiation based on Quality and
Additives Increase in advertising
$4.3 million in 2000 to $120.4 million in 2007
External Analysis Analysis Conclusion
Competitive Approach & Strengths Competitors are larger & dominate shelf space
Firm position to offer more-for-same Position – Quality, perceived class & social status
Perceived health benefits from acai berry Social benefits from sustainable development.
Short-term growth dependant on consumer preference
Internal Analysis Financial Analysis
2007 2008
VeeV Rock 838 1298 Sales RevenueCases Sold (in Thousands)
% of sales price
Estimated Revenue 2007 2008
Retailer 18.2 $28.62 828 $23,698.87 $-
Distributor 22.5 $20.75 8868 15576 $184,002.75 $323,187.51
$209,708.62 $323,187.51 *Assumptions: numbers were in cases, cases are 12 bottles per case and retail in $34.99.
Internal Analysis Financial Analysis
Liquor Industry Growth: $143.7 billion (2004), $153.4 billion (2007), projected $156.4 billion (2008)
Growth is driven by increased consumption of cocktails $5-10 mln in capital comes from investors Cortney invested $250,000 in capital You invest, you get 122% return Carter gets involved in business at the idea
development stage $34.99 per bottle of VeeV Different perception of brothers’ inputs. First 3 months
Cortney alone, next 5 years brothers are together in the business
Internal Analysis Operational Analysis
Distiller capable of infusing acai into alcohol Shares commitment to environmental sustainability
6 months to create final formula Lack of information-
Loss of time at the development stage Misrepresentation on the labels Website issues
Approval from government & distiller Special license to self-distribute in California August 2007 hired the distributor (SWS) to
expand into other markets
Internal Analysis Operational Analysis
Reums- retained control of where & how to launch Production Problem
Distiller is creating different formula iterations Ship less than 200 milliliters to qualify as samples. Appeared in its bottle only after the first full production
run Discoloration
Tinker with the formulation The response to customers: you didn’t notice with the
first run, all natural product that have shelf life In fall 2007 the problem was resolved
Stabilizer was removed from VeeV
Internal AnalysisMarketing & Competitive Position Capitalize on vodka’s current momentum
Not be pigeon holed Classified as a liquor
Stands out by not being colored First organization classified as carbon neutral Distiller – Wind Power Encourage employees to practice social responsibilities
5% to 10% bonuses are tied to both personal and work-related efforts Reums donated $1/bottle to The Sustainable Acai Project (SAP) in
Brazil Acai is sustainable
Helps protect the rain forest Sustenance & subsistence for local inhabitants
Evaluation of AlternativesEquity 90 – 0 60 – 40 (or any other
split)50 – 50 50 – 50 more votes
Effect on Stakeholders
Carter completely sidelined, ignored by company
Courtney maintains power and money
Carter’s efforts recognized, not as significant, “smaller brother”
Courtney gives up some power and money, but maintains majority
Both brothers own the same amount
Both brothers important and equally responsible for the company
Courtney no longer has majority
Both brothers own the same amount
Both brothers important and equally responsible for the company
Originally Courtney’s idea, company, and risk recognized
Costs None Lose significant equity of business
Lose significant equity of business
Lose significant equity of business
Fit with Current Process
No, Carter’s work should be recognized
Better, recognizes Carter’s work but gives Courtney majority
Ok, recognizes Carter’s work but does not recognize that business is Courtney’s
Better, recognizes Carter’s work allows Courtney to “retain majority”
Risk Lose Carter Lose some equity, but maintain majority
Lose significant equity and say on decisions
Lose significant equity
Evaluation of AlternativesDiscoloration Continue to Sell Recall
Effect on Stakeholders Customers may feel cheated, may lose faith in VeeV
Reum’s will be only postponing the eventual
Customers will not be able to buy product, may raise questions about brand
Reum’s will lose business
Costs No costs to implement May lose business in future
Recall and destruction costs Opportunity costs
Effect on Brand Image High quality will come into question
Brand image will be tarnished
High quality will come into question
Brand image be effected, but can be salvaged
Market Share Maintain or grow in the short term
Lose in mid to long term
Lose market share in short term Gain back market share in mid
to long term if re-launched
Evaluation of AlternativesCSR Green All The Way Cut Back on Green No Green
Effect on Stakeholders Reum’s will be continuing to be green
Customers may be happier to spend on VeeV
Shareholders may feel that company is giving away needed money
Reum’s will continue to be green
Customers may be happier to spend on VeeV
Shareholders will see more money coming into company
Reum’s will have to compromise on their principles
Customers may or may not be affected
Shareholders will see more money coming in
Costs Cutting from company profits
Cutting less from company profits
Company keeps its profits
Effect on Brand Image Greener, more socially responsible company
Still, green and socially responsible
Another alcohol company
Improve Goodwill Significantly Some what Not at all
Recommendations Share Equity – 90% remaining
Profits split equal but Courtney retains more of deciding votes Reasoning: Courtney did most of the foot-work,
established the investment, initial risk, idea generation.
Conclusion: Courtney should retain the higher number of voting shares
Recommendations Discoloration
Recall current products in the market Demand distiller to change filter or change
distiller Legal proceedings against distiller Relaunch product
Reasoning: Already happened once and explaining
again will hurt the reputation (duty to the customers)
Recommendations Efforts to be ‘green’ & socially responsible
Decide if “green” & Social Responsibility is a good marketing strategy for this type of product
Reasoning: being Green is good ethical and marketing tool but at this young stage the focus should be on the business and growing profitability because without profits from business donations are not possible. Continue donating $1 can be continued but the rest of the campaigns should be stopped for the moment
KANT THEORY
ImplementationShort-term
Pull out all discolored product off shelves Address the problem with distiller: demand
fixing the problem or the distiller will be changed
Assuming that distiller is willing to fix the problem rush production to replace pulled product at distiller’s cost
Inform customers of a short-term backorder due to the production issues
Reduce CSR activities to $1 per bottle until the company resolves the discolor issue
As per our recommendation profits should be split equally, deciding vote remains with Courtney (taxes)
ImplementationMed-term
Assumption: the distiller is willing continue producing VeeV at premium quality
Continue with current distiller as they own the formula but the company should start looking for another distiller to recreate the formula
ImplementationLong-term
Go after distiller for losses due to tainted product if the distiller wasn’t willing to absorb the pulled and reproduction losses
Change the distiller Revisit CSR strategy depending on
success rate
Contingency Plan Divest and try to absorb losses by selling
company Reasoning: by selling to a major player the
risk is being transferred. Bigger pockets and more knowledge, the ability to launch internationally at a faster rate. At the end the product is still on t he marker. Control will be lost but the product is still out there and no debt remains.
Financial Implications2008
VeeV Rock In Market (unused) Inventory Sales RevenueCases Sold 473.5 3552 2008
Distributor 22.5 $ 20.75
5,682.00 42624
$ 1,002,304.58 $ 1,002,304.58
Legal FeesCost of DistructionProduction rerun
* Assumption In Market (unused) 50% of product is left